Cash For Clunkers: Modern Electric Vehicle Variant An Obvious Climate Policy

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In the 1990s, numerous countries both within and outside Europe launched vehicle scrappage schemes with multiple goals. Greece, Hungary, Denmark, Spain, France, Ireland, Norway, and Italy each implemented programs during this period, aimed at scrapping older cars to promote the purchase of newer, safer, and more efficient vehicles. For example, Greece introduced one of the earliest scrappage schemes from 1991 to 1993, followed by Hungary, which has continued its program up to the present day, and Spain, which also established a lasting scrappage initiative beginning in 1994.

These programs typically pursued three main objectives. Firstly, they aimed to stimulate the national car industry and economy by encouraging consumers to buy new vehicles, effectively driving demand and supporting domestic manufacturers. Secondly, they sought to improve transportation safety by replacing older vehicles with newer, safer models equipped with advanced safety features. Lastly, these schemes intended to reduce emissions by removing high-pollution cars from the road and replacing them with vehicles that met more stringent environmental standards.

Now is the time for programs that invert that order, providing incentives for people scrapping even relatively new internal combustion vehicles as long as they buy electric vehicles and only electric vehicles. That it has benefits for domestic car manufacturing and economic turn over should be the bonuses, not the point.

This exploration was, as many I’ve done in the past 18 months, triggered by a conversation with Jakob Rogstadius, a researcher with the Swedish RISE research institute. Rogstadius was lead researcher on the European road freight study I participated in as an advisor, along with David Cebon, director of the Centre for Sustainable Road Freight at the University of Cambridge, and the lead of Daimler’s hydrogen fuel initiative. The results of the study were predictable to me as I ensured realistic assumptions for electrification and hydrogen were used as opposed to incredibly optimistic and unrealistic hydrogen assumptions typical for the genre.

Suffice it to say, hydrogen has no economically viable role in European road freight in the future. I’m sure the Daimler representative and his boss, Andreas Gorbach, the Board member and head of truck technology, who regularly promotes hydrogen to the detriment of both Daimler and European discourse, were displeased with the outcome.

Recently, Rogstadius has been asking me about some alternatives he’s considering, including electrified road systems — which I consider a politically non-viable bridge solution — and converting existing internal combustion vehicles to electric as a specific program — which I consider viable for some classes of vehicles like school buses, and not for others, including anything which has to travel more than 100 kilometers in a day and most passenger vehicles.

I suggested he consider cash for clunkers programs and our discussion led me to explore them a bit further, and to formulate the strong opinion, weakly held, that they should be used heavily to get internal combustion cars off roads and electric vehicles on to them, especially in the west, where we are seriously lagging on this point outside of countries like Norway.

Part of this was triggered by what China is doing this year. It has ramped up its efforts to reduce vehicle emissions and stimulate the auto industry with a comprehensive vehicle scrappage program focused on electric vehicles (EVs). The initiative, launched in April of 2024, provides financial incentives for consumers to trade in older, high-emission vehicles and purchase cleaner, more efficient EVs. Eligible participants scrapping cars that meet China’s III emission standards or older qualify for a subsidy of 10,000 yuan (about $1,378) for a new EV, a figure that doubled to 20,000 yuan ($2,766) in July. For consumers who trade in older, high-emission vehicles and purchase a new fuel-efficient car with an engine size of 2.0 liters or less, the program offers a subsidy of 15,000 yuan (about $2,074 USD).  Additionally, subsidies are available for scrapping early new energy vehicles (NEVs) registered before April 2018, further promoting the adoption of up-to-date models.

There are a few things to tease apart there. The first is that it’s clearly an economic stimulus program aimed at unlocking private savings to keep the economy turning over. China is going through a significant period of transition as its infrastructure buildout slows, and is managing through this with a variety of tools. This is one of them. It’s expected to result in 1 million to 2 million passenger car sales, representing approximately 3.2% to 6.5% of the overall auto market share. This is directly in line with cash for clunkers programs of the past.

The second is that to western eyes, $2,766 may not look like much. However, China’s purchasing power parity advantage means that the average basket of purchased goods costs 40% less there than in Europe or North America, and that includes cars. The BYD Seal, a sleek mid-size electric sedan, combines advanced technology with affordability, offering configurations like the Standard, Long Range, and Intelligent Driving editions at prices starting around 175,800 yuan (approximately $24,500 USD) in China. The Seal compares directly to the Tesla Model 3, which starts at $43,000 in the USA and €43,000 in Europe. That $2,766 is 12% of the purchase price of the car.

That’s on top of electric cars in China being exempt from or have reductions in the 10% vehicle purchase tax, as well as various local programs, usually in the biggest cities such as Shanghai. It’s very economically wise to buy electric cars in China, and with the massive selection of high quality, high range vehicles, it’s understandable that now the majority of Chinese car buyers are doing just that.

Next is the pervasive power, even in China, of ‘efficient’ internal combustion vehicles to get in on these deals. The incentives are lower, but still there.

Something else to observe about China’s program is that it only applies to internal combustion cars registered up to 2011, and new energy vehicles registered up to 2015. It’s not, as I had mistakenly understood, taking relatively new cars off of the road.

The most important element of the program is something that not every program has had, which is the scrappage part. As countries with stricter environmental regulations and more affluent consumers push to adopt newer, cleaner vehicles, a global market for older, high-emission automobiles has steadily grown in less affluent regions. While cash-for-clunkers programs and emissions policies in Europe, North America, and parts of Asia are designed to phase out outdated vehicles, they also inadvertently create a supply of used cars that, instead of being scrapped, are exported to low- and middle-income countries. This transfer contributes to significant emissions and raises questions about the longevity and environmental impact of these vehicles in their new homes.

Data from the United Nations Environment Programme (UNEP) reveals that millions of used vehicles flow from wealthier regions to Africa, Latin America, Southeast Asia, and the Middle East annually. Many of these cars are 10 to 15 years old or more by the time they are exported, yet they find new lives on the roads of countries with more lenient emissions regulations and lower consumer purchasing power. Some vehicles arrive with degraded engines, worn-out emissions systems, and weakened safety features, but the need for affordable transportation drives demand. With skilled local mechanics and the widespread availability of spare parts, these cars often remain in operation for decades longer than they would in their countries of origin.

In places such as Africa, imported used cars can last 20 years or more, serving multiple owners and achieving extended mileage that exceeds 300,000 or even 400,000 kilometers. Markets such as Kenya, Nigeria, and the Philippines have become hubs for these older vehicles, where they serve critical roles in family transportation, small business operations, and even as part of public transport fleets. However, this extended vehicle life comes at a cost. UNEP reports that these used vehicles contribute disproportionately to urban air pollution in receiving countries, as they often lack modern emissions-control technologies and may run on lower-quality fuel.

The environmental impact of this long-tail vehicle trade is increasingly under scrutiny. In response, some countries are implementing age limits or emissions standards on vehicle imports to curb the influx of high-polluting cars. For example, Kenya has capped the age of imported used vehicles at eight years, and several Latin American countries are exploring similar policies. However, the demand for affordable vehicles persists, challenging governments to balance economic accessibility with environmental concerns.

Cash for clunkers programs that don’t involve scrapping the internal combustion car just means that it ends up in this global program. Any good policy would ensure scrapping was required and tracked.

The global transition to electric vehicles (EVs) is reshaping the used car market, with a notable increase in the export of used EVs from affluent to less affluent regions. Historically, countries like Japan, the United States, and European nations have been major exporters of used vehicles to developing countries. As these nations adopt EVs more widely, their used vehicle exports are beginning to include a higher proportion of electric models.

For instance, Japan has seen a rise in the export of used EVs, particularly to countries in Africa and Southeast Asia. This trend is driven by the growing availability of used EVs in Japan and the increasing demand for affordable electric transportation in developing markets. Similarly, European countries are exporting more used EVs to Eastern Europe and North Africa, regions that are gradually building the necessary infrastructure to support electric mobility.

Crafting a good policy would be strongly supportive of enhancing the flow of used EVs from more affluent to less affluent regions. That’s where China’s policy might get it wrong, leaning on the economic stimulus part of the policy. Older new energy vehicles that get traded in still have to be scrapped, instead of flowing into the used car conveyer belt. However, scrapping of an EV does mean getting the lithium out of its cells and building new batteries for new cars with it. And China is pivoting from new steel from coal-fired blast furnaces to scrap steel through electric arc furnaces this year. They may have modeled this out and realized that they could have stronger climate and economic impacts by building more efficient and desirable new electric cars and enhancing the EV scrap to new EV value chain. Right now, recycling EV batteries is an industry more noted for exuberant visions of the future than big volumes today, simply because we haven’t scrapped a lot of EVs.

Some of the lack of scrappage historically in these programs was due to a very local perception of air pollution being the primary concern, not climate change. Getting high polluting vehicles off of domestic streets and exporting that pollution to poorer regions undoubtedly seemed like a fine idea at the time. Today, of course, the problem is viewed through the lens of not only local air pollution, but climate change and environmental justice. Foisting high emitting and high polluting cars onto third world countries doesn’t, or at least shouldn’t, pass muster any more. Their kids deserve clean air and reduced climate emissions too.

Of course, a cash for clunkers program that focuses on EVs works very well in China, which builds 60% of the worlds electric vehicles. Not so much in the west, where legacy manufacturers have been resisting the inevitable for a long time, and still are. Jim Farley, Ford’s CEO, has made it clear in recent interviews that Ford is going to be building big luxury vehicles for the top 20% in the USA, not building affordable electric vehicles. GM is trying, but it’s better known for the electric Hummer and cancelling its affordable Bolt than building electric cars average Americans can afford.

On the other side of the pond, manufacturers like BMW and VW are somewhat better, but are still pushing for highly inefficient and expensive synthetic fuels to keep their internal combustion engines burning something instead of focusing on EVs.

Any policy makers looking at a cash for clunkers program focused on replacing internal combustion vehicles with EVs would have to establish the political backing necessary to resist the heavy lobbying from western car manufacturers and the fossil fuel industry that would inevitably ensue.

Personally, I think a good policy would scale with emissions, expected lifespan of the scrapped vehicle and have no age limitations. Bought a Cadillac Escalade V with its 11 miles per gallon last year from GM — really, Mary Barra, still selling that emissions and aesthetic disaster to people as lacking in taste as the original Hummer purchasers? — and are feeling buyer’s remorse, perhaps because your daughter has disowned you and is conducting an Instagram and Tiktok campaign against you? You should be eligible for scrappage for a new electric vehicle, and it should be based on the obEscalade spewing carbon dioxide for another twenty years. Much better to get that beast off the road today and replaced with an EV than a 12 year old Honda Civic, with its combined 33 miles per gallon and maybe another ten years before it’s not working even in the developing world.

Any good program shouldn’t include scrapping older electric vehicles unless modeling shows that kickstarting EV battery recycling is more virtuous. And, of course, fuel cell vehicles should be excluded completely from the program, something else China permits within its program, having not expunged that dead end from its policies yet. Buyers have it figured out, of course, with only 6,000 fuel cell light vehicles vs 9.5 million plug in vehicles sold in China in 2023, a ratio of 1,600 to 1. (As a side note, fuel cell fan bois were ecstatic with the 72% increase in fuel cell vehicles in China from 2022 to 2023, clearly not having looked at the massive size of the market and fuel cell vehicles homeopathic contribution to it. There are lies, damned lies and hydrogen statistics.)

Some western countries get it. In France, the government offers a “conversion bonus” that provides up to €5,000 to those scrapping older, high-emission vehicles and purchasing a new or used EV. The program prioritizes lower-income households, making EV ownership more accessible. Germany has introduced an “environmental bonus,” which can reach €9,000 when combined with additional incentives for scrapping an older car, giving buyers a substantial boost toward a new electric model. Meanwhile, Italy offers up to €6,000 to consumers who trade in vehicles at least a decade old for an EV, aiming to accelerate the transition to cleaner mobility.

France has amended its policy to disallow EVs manufactured in China because they are made in “high emissions” countries. I think this is the wrong approach to this policy as well, as China’s emissions are going to be plummeting in the coming years with the massive renewables build out, the much greater electrification of industry and transportation they already have and their pivot to electric arc furnace steel. Cars’ lifetime emissions come mostly from driving them, not making them. Allowing cheaper Chinese EVs in these scrappage programs, as Italy and Germany do, is the right move. If protectionism is required for good or bad reasons, let EU tariffs take care of that.

In Colorado, the US state offers residents up to $6,000 to trade in an older, high-emission vehicle for a new EV, or up to $4,000 for a used EV, with additional incentives for lower-income households. North of the border, British Columbia has introduced a program providing up to $3,250 to residents who recycle an old vehicle and purchase an EV.

The North American programs only cover about 11 million people. The European program covers about 200 million. The Chinese program covers 1.4 billion people, although a lot fewer of them have old cars to scrap. It’s another area where China is leaving us behind. Time for the west to fire up its car crushers and electric arc furnaces.